An argument for simpler financial reporting – AHB September 2020

I have occupied an apartment in our building at 34 Union St since February 2011. Like every owner, I had purchased my lot in a strata building knowing there was an annual levy to cover the costs associated with cleaning, services, management etc. We all settled down to a pleasant life and our regular six monthly levy.

In a remarkably short time problems arose, and with more investigation came more unpleasant findings. Many of the faults would have happened unnoticed particularly to non-resident owners. A fairly dramatic escalation came when the building was found in breach of fire regulations and the expensive installation of a sprinkler system was required. The special levy of $22,000 per lot was the result.

The increase of problems, how they were to be fixed and the limited opportunity for legal action required unusual effort by your manager and committee. A separate "Maintenance Fund" was started with an annual levy of $356 and eventually a legal victory at the VCAT provided us with $2.45 million.

I attended each day our case was scheduled for a hearing at the VCAT and can describe one particularly infuriating occasion. We're all poised to present our argument when the other side asks for an adjournment because an expert they intended to use was in New Zealand. Not an expert who was ready to present his evidence, but one they hoped to hire when he returned! They got their postponement and off we went to wait another month or so.

We are now in 2020 and it would be quite reasonable for an owner to reflect on where we are at this time. We had a levy to cover all routine maintenance, and the additional amounts of $1.232 million from the sprinkler levy to fix that specific problem and $2.45 million from VCAT, totalling $3.682 million.

With the same reasonableness, they would like to see what has been paid for out of that sum. Was the maintenance component of the original levy sufficient for “normal” maintenance costs and how much of the $3.68 million is left for remaining major works?

If we look at the financial statements presented to the 2020 AGM we find our net assets are about $29,000 – sounds like there’s not much left of the $3.68 million – but look closer. There’s one line that says “Total Assets $930,725” and that sounds encouraging, but just below it has “Total Liabilities $901,769”.

The unsophisticated owner says “I don’t understand”. There may be professional or legal reasons why financial reports are presented in this way, but they should be accompanied by an explanation for the uninitiated.

If we pursue our look at the “Financial reports” there are more puzzles. The planned expenditure budgeted in 2020 for the items labeled “Maintenance & Repairs” and “Essential Services & Maintenance Agreements” total $61,130. We have to assume that the “Maintenance Levy” that totals a little less than $20,000 annually is purely a supplement to cover the combination of “normal” maintenance and the unexpected.

A question remains. We have the fairly expensive timber cladding to be funded. The naive can only assume that although it’s not in the budget, it will somehow get paid for from our curious assets.

A matter that will arise soon and perhaps should have been an issue since day one is that of planning for future repairs and replacements. The Owners Corporation Act requires strata groups with more than 100 participants or levies of $200,000 or more to have a formal Maintenance plan for the next 10 years and a separate und to finance it.

Our manager and committee should think of the less financially literate who still have a need and probably a right to a clear presentation of the financial position of their investment.

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